Sovrenn Times: Macroeconomy Update | 29 August 2025
Govt Extends Cotton Import Duty Exemption Till Dec 31 to Ease Textile Costs Amid US Tariffs
The government has extended the 11% cotton import duty waiver till December 31, 2025, offering the textile industry cost relief through the festive season as domestic cotton output hit a 15-year low of 29.4M bales. India has already imported 3.9M bales this year, with estimates suggesting a record 4.2M bales. Industry bodies like CITI welcomed the move, saying it would cut input costs by 1–5% since global cotton is about 10% cheaper than Indian cotton, supporting exporters struggling after the US imposed a 50% tariff on Indian goods (the US accounts for 28% of India’s textile exports). However, farmers raised concerns, warning that unrestricted imports may suppress domestic prices and increase farmer losses. India’s cotton yarn exports fell 6% in FY25, continuing the post-2021 decline caused by higher local cotton prices.
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US Tariffs Could Cut India’s GDP by ~0.5%, Warns Ex-Commerce Secy G.K. Pillai
A 50% tariff imposed by the US on Indian exports may shave approximately 0.5% off India's GDP, particularly hitting labour-intensive sectors like textiles, gems & jewellery, seafood, leather, chemicals, and machinery, former Commerce Secretary G.K. Pillaistated .While the immediate macroeconomic impact may be modest, Mr. Pillai warned that profitability may dip for about 3–6 months, potentially forcing some businesses to lay off employees. He emphasized that timely government interventions will be essential to alleviate these challenges.Export values affected are substantial—more than $48 billion in shipments are now exposed to steep duties. To counter this, Mr. Pillai recommended incentivizing exporters to explore new markets and adopt business models that enhance their competitiveness.
PMJDY Turns 11: 56 Cr Accounts Opened, ₹2.68 Lakh Cr Deposits Mobilised
Marking 11 years of Pradhan Mantri Jan Dhan Yojana (PMJDY), Union Finance Minister Nirmala Sitharaman announced that 56 crore accounts have been opened since its launch on 28th August 2014, mobilising deposits worth ₹2.68 lakh crore. The scheme has also issued 38 crore free RuPay cards, driving digital payments adoption. Notably, 67% of accounts are in rural/semi-urban areas and 56% are held by women, highlighting its role in financial empowerment. The government credited PMJDY as a backbone for Direct Benefit Transfers (DBT), credit access, and social security coverage. Minister of State for Finance Pankaj Chaudhary called it one of the world’s most successful inclusion programmes, citing ongoing saturation drives across 2.7 lakh Gram Panchayats to ensure universal access to accounts, insurance, and pensions. PMJDY has thus become a cornerstone of India’s financial inclusion strategy, bringing millions of underprivileged citizens into the formal economy.
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GST Cut Can Add 20–50 bps to GDP Growth, Multiplier Effect (1.08x) Outpaces Income Tax Reduction: Ambit Capital
A report by Ambit Capital finds that a 1% cut in GST rates has a multiplier effect of 1.08x, higher than income tax or corporate tax reductions, making it the most impactful fiscal stimulus tool. If rate cut benefits are passed on to consumers, GDP growth could rise by 20–50 bps. Unlike direct taxes, GST impacts all consumers at the point of sale, amplifying consumption across the economy. However, the report cautions that GST rationalisation could cause an annual revenue loss of ₹0.7–1.8 trillion, mostly borne by states, suggesting higher rates on sin and luxury goods (up to 40%) to offset losses. Lower GST is expected to boost discretionary spending in automobiles and appliances, though FMCG and cement may see limited impact due to inelastic demand. Rationalising multiple GST slabs could also reduce compliance costs, prevent misclassification, and expand the tax base, bringing more MSMEs into the formal economy.
Industrial Output Hits 4-Month High at 3.5% in July, Boosted by Manufacturing
India’s Index of Industrial Production (IIP) grew 3.5% in July 2025, a four-month highversus 1.5% in June, aided by a 5.4% YoY surge in manufacturing, its best in six months. Mining contracted 7.2%, while electricity rose just 0.6%, dragging overall growth. Within manufacturing, key drivers were electrical equipment (+15.9%), basic metals (+12.7%), and non-metallic minerals (+9.5%), with 14 of 23 industry groups showing gains. By usage, infrastructure/construction goods soared 11.9% (21-month high), while capital goods rose 5%, hinting at stronger investment demand. Consumer durables grew 7.7%, aided by pre-festive stocking, while non-durables rose only 0.5%. Economists flagged weak private investment and global headwinds, though GST cuts and export orders may aid momentum. With a favourable base, August growth is expected at 5–6%, sustaining the recovery despite risks from the US’s 50% tariff on Indian goods.